Third Party Due Diligence Policy & Procedures

Purpose

The objective of ADS’ Third Party Due Diligence Policy and Procedures (the “Policy”) is to promote compliance by ADS and ADS’ third party business partners (“Third Parties”)1 with ADS’ Code of Business Conduct and Ethics, ADS’ Global Anticorruption Policy, the U.S. Foreign Corrupt Practices Act, the United Kingdom Bribery Act, the OECD Anti-Bribery Convention and all other applicable laws, including local anticorruption laws where ADS conducts business. This Policy applies to all ADS businesses, directors, officers, and employees.

Before entering into a relationship or renewing an existing relationship with a Third Party, the sponsoring party must comply with requirements set forth herein. The specific due diligence requirements will vary depending on the risks associated with the Third Party.

Scope
This Policy should be read in conjunction with ADS’ Code of Business Conduct and Ethics and ADS’ Global Anticorruption Policy. If you have any questions or are uncertain about any given situation, you should seek further guidance from your manager, via ADS’ reporting Hotline at 888-234-4790 (you may remain anonymous), from ADS’ Compliance Manager at compliance@ads-pipe.com, or via the internet at: www. ads-pipe.alertline.com (you may remain anonymous).

Roles & Responsibilities
Chief Compliance Officer
The Chief Compliance Officer (“CCO”) is responsible for overseeing the due diligence review process. The CCO shall consult with other stakeholders, as necessary, to ensure compliance with this Policy and to resolve any issues identified by the Compliance Manager.

The Compliance Manager 
The Compliance Manager may adopt procedures needed to implement this Policy, coordinate with Operational Departments to carry out those procedures (such as Export, Procurement, Sales, Customer Service, the Credit Department, Engineering and/or Accounts Payable), and request additional information or documents from a prospective Third Party, as necessary.

The Compliance Manager will identify the appropriate level of due diligence by assessing the risk level (utilizing Third Party Review Criteria) and the presence of any Red Flags, as defined herein. If deemed necessary under the appropriate level of due diligence, the Compliance Manager may coordinate with the Business Sponsor to provide and collect a Third Party Due Diligence Questionnaire, customized, if necessary, to reflect unique circumstances, from the Third Party.

The Compliance Manager will have responsibility for final approval, rejection, or requests for further information from a Third Party. If necessary, the Compliance Manager may consult with other stakeholders, outside counsel or the CCO to resolve a specific Due Diligence Review

Business Sponsor
The Business Sponsor is responsible for coordinating with the Compliance Manager to meet the requirements of this Policy. If requested by the Compliance Manager, the Business Sponsor will provide a statement of the business case for a relationship with a Third Party, including details such as: business need, reasonableness of proposed compensation and comparison with the market, capabilities of the proposed Third Party, reason for selection, and description of the relationship formed to date. The Business Sponsor will also be responsible for distributing and collecting the Third Party Due Diligence Questionnaire, when applicable, to/from the potential Third Party to obtain the information necessary to conduct a thorough due diligence review.

Operational Departments
Operational Departments, such as Export, Procurement, Sales, Customer Service, the Credit Department, Accounts Payable, Engineering, and/or others, are responsible for supporting the Compliance Manager’s administration of the due diligence process. This may include, as necessary, implementing policies and procedures to ensure that the due diligence process is followed.

Due Diligence Process
Step 1 – Determination of Due Diligence Level: Using the Third Party Review Criteria and Red Flag list, the Compliance Manager will set standards to determine if a due diligence review is required and, if so, the appropriate level. Depending on the nature of the risk, a due diligence review may be conducted either prospectively or retrospectively on a Third Party. At a minimum, Basic Due Diligence will be conducted on any Third Party identified as posing an elevated corruption risk based on the standards set by the Compliance Manager.

Step 2 – Due Diligence Review: The Compliance Manager, in consultation with the Business Sponsor, Operational Departments, and any other relevant stakeholder, will be responsible for reviewing and analyzing any information provided by the Third Party or discovered during the due diligence review process.

Step 3 – Risk Mitigation: If a heightened level of risk is discovered, the Compliance Manager may require additional due diligence information or risk mitigation steps. The Compliance Manager may elevate the decision to the CCO, as necessary.

Step 4 – Final Decision: Based on the results of the appropriate level of due diligence review, the Compliance Manager may approve (with or without conditions) or reject the Third Party and must communicate the decision to the Business Sponsor and all other appropriate stakeholders. No Third Party will be approved until all Red Flags have been resolved and the risk of corruption has been adequately mitigated

Step 5 – Documentation: The Compliance Manager shall be responsible for maintaining an electronic file containing all information gathered or materials created as part of the due diligence process. That file must be retained in accordance with ADS’ official document retention policy or for five years (whichever is longer).

Levels of Due Diligence Review
The appropriate level of due diligence, as determined by the Compliance Manager, will depend on the particular facts and circumstances and the existence of any elevated corruption risks or Red Flags, which must be investigated and resolved. The appropriate level may change as more information is discovered.

Level 1 – Basic Due Diligence Basic Due Diligence consists of an anticorruption database screening and is conducted on all Third Parties determined to pose an elevated corruption risk to ADS, as guided by the Third Party Review Criteria and any identified Red Flags. At the direction of the Compliance Manager, Operational Departments must ensure that a Basic Due Diligence screening is performed when necessary and documented in ADS’ system.

Level 2 – Enhanced Due Diligence
An Enhanced Due Diligence Review may include any or all of the following requirements:

• Completion of a Third Party Due Diligence Questionnaire
• Receipt of ADS’ Third Party Code of Conduct by the Third Party
• Inclusion of anticorruption provisions committing the Third Party to compliance with ADS’ Third Party Code of Conduct in any agreements formed with the Third Party
• Screening of the entity and each owner through ADS’ open source intelligence database that includes media information, public domain records and Government databases such as:
  • Adverse media references
  • Criminal prosecutions of the company or its owners/shareholders/managers
  • Politically Exposed Persons (“PEPs”) and close associations
  • Regulatory enforcement checks for entries related to prohibited persons or entities, terrorism, corruption, organized crime, white collar crime, or arms trafficking.
  • Completion of a summary Due Diligence Memo documenting the final decision of the Compliance Manager, including: analysis performed, any deviations from the standard process, and individuals involved in the process.
  • Statement of the business case as provided by the Business Sponsor
  • Due Diligence File created by the Compliance Manager and stored according to ADS’ Record Retention Policy.
    

Level 3 – Focused Due Diligence
A Focused Due Diligence Review may include any or all the following requirements:

• If the Third Party has an existing relationship with ADS, review of payment records, invoices and selected transactions.
  • The due diligence investigation may include on-site visits and inspections by ADS personnel (or a due diligence investigator or other agent acting on ADS’ behalf).
• Verification of the Third Party’s beneficial ownership and screening of each owner through ADS’ open source intelligence database, this may require the involvement of an outside investigator.
• Follow-up questionnaire asking the Third Party to respond to any identified corruption concerns.
• Verification of the Third Party’s beneficial ownership and screening of each owner through ADS’ open source intelligence database, this may require the involvement of an outside investigator.

Level 4 – Comprehensive Due Diligence
In exceptional situations where the due diligence process involves a Third Party with multiple Red Flags that cannot easily be investigated and/or resolved, the Compliance Manager must elevate the investigation to the CCO.

A Comprehensive Due Diligence Review may include, as necessitated by the circumstances and in response to the specific Red Flags identified, any or all of the following:

• Targeted investigation conducted by ADS or by an independent due diligence investigative company that may include:
  • Company profile with information on:
    • Business registrations
    • Ownership/shareholders
    • Management structure, and
    • Government affiliations of any owner/shareholder or manager.
  • Data related to the owners/shareholders/managers including any or all of the following:
    • Family members and their connection to the government
    • Educational and professional credentials
    • Links to other companies to include information on owners/shareholders/managers who are linked to other companies in similar industries
    • Family members of owners/shareholders/managers who are with other companies in similar industries.
• Interviews with the proposed Third Party.
• Additional financial investigation of bank accounts and transactions.
• Investigative interviews in local country of individuals and businesses with knowledge of the Third Party’s business practices and reputation for ethical conduct.
• An advice of counsel memorandum from a neutral in-house or outside counsel evaluating the risk of anticorruption violations from a relationship with the Third Party and concluding that the risks are not significant enough to refuse to enter into or renew a contract with the Third Party.

Third Party Review Criteria
ADS will consider the following criteria in evaluating the corruption risks arising from its relationship with a Third Party to determine the appropriate level of Due Diligence Review:

• Level of involvement, monetarily or operationally, ADS will have with the Third Party.
• Presence or absence of red flags.
• Operation in a country with a Corruption Perception Index below 60 as listed by Transparency International’s Corruption Perception Index (see Appendix A).
• Competence of the proposed Third Party to provide goods or services with ADS (such as his, her or its qualifications, expertise and resources).
• Business justification for the initial or continued retention of the proposed Third Party.
• Accuracy and completeness of the information provided by the proposed Third Party.
• Ability of each party to comply with all applicable laws governing ADS’ relationship with the proposed Third Party.
• Ability of the Business Sponsor, in combination with any other compliance measures, to ensure adequate and continuing compliance oversight of the proposed Third Party.
• Extent to which ADS’ written agreements with the proposed Third Party requires that the proposed Third Party
  • Complies with domestic and extraterritorial anti-boycott laws, anti-bribery laws, export/re-export controls and economic sanctions as well as with ADS’ policies which address the foregoing laws,
  • Complies with clear contractual limits regarding the countries in which, and from which, the proposed Third Party may deal with government officials or customers on behalf of ADS,
  • Compels any subcontractors or business partners to abide by substantially equivalent contractual terms and conditions (to the extent that they assist with the provision of goods or services to or on behalf of ADS),
  • Maintains accurate and complete accounting and financial accounts, books and records,
  • Permits ADS to audit those accounts, books, records and related internal controls, and
  • Cooperates and successfully completes any compliance review renewal or updates processes adopted by ADS under this policy.

Third Party Red Flags
This Policy is designed to identify and resolve potential “Red Flags” indicating a potential risk of corruption and bribery in its relationships with Third Parties. ADS is committed to investigating Red Flags and resolving them through a variety of techniques, including reviewing additional information, conducting further inquiries, analyzing information, and developing a sufficient record of information and analysis to support resolution of specific Red Flags. The goal of this process is to mitigate any risk that a Red Flag will later prove to have been an indicator for corrupt activities.

Some examples of Red Flags are set forth below. This list is neither exhaustive nor intended to restrict the due diligence review.

Ties to Government 

• Family or business ties to government officials or employees.
• Large or frequent political contributions.
• A government official or employee recommended the Third Party.
• References to political or charitable donations as a way of influencing official action.
• Large sales to government agencies with unusually high unit price and low frequency

Questionable Circumstances 

• Refusal to cooperate with the due diligence investigator or refusal to make representations and warranties.
• The Third Party is not in compliance with local law.
• Suspicious statements such as needing money to “get the business” or “make the necessary arrangements.”
• Submitting invoices or requests payment with suspicious entries or under suspicious circumstances.
• Bankruptcies, default on obligations, civil suits alleging fraud, property seizures, criminal or regulatory issues.

Unusual Compensation 

• Requests for a commission or other payment substantially above the market rate or requests a substantial up-front payment.
• Requests for payments in cash or in checks payable to cash or bearer.
• Requests that payment be made through a third party or in a third country.
• Refusal to properly document expenses.

Poor Reputation

• Reputation for unethical conduct.
• The country in which the Third Party is based, or where the business with ADS will be conducted, has a reputation for corruption.

Insufficient Capabilities

• The Third Party is not expected to perform substantial work.
• The Third Party lacks the staff, facilities, or expertise to perform substantial work.
• The Third Party lacks relevant industry/technical experience.

Contractual Provisions
ADS’ Terms and Conditions of Sale include provisions to mitigate potential corruption or bribery risk. Additional anticorruption provisions may be added to contracts with any Third Party to mitigate risks identified during the Due Diligence Process, such as: anticorruption representations and warranties, specific risk-based certifications to confirm representations made during the Due Diligence review, audit rights, termination rights, payment terms, and additional provisions which may be required based on the specific circumstances. Any additional contract terms must be approved by the Legal Department, in consultation with the Compliance Manager

Ongoing Monitoring
ADS will use reasonable efforts to perform ongoing monitoring of its Third Parties via a variety of processes that may include exercising audit rights, refreshed due diligence screening, and Third Party Code of Conduct certifications. ADS may conduct additional due diligence reviews and analysis as necessary to mitigate ongoing risks and intervene to reduce ADS’ overall risks

Policy Flexibility
The Compliance Manager may waive specific requirements of this Policy in appropriate circumstances. (An example of when a waiver might be appropriate is where a specific Policy requirement cannot be satisfied and there is an immediate need to retain or renew a Third Party relationship because of an unforeseeable financial risk of material significance.) Such decisions may be made in consultation with outside counsel and/or the CCO

Questions, Reporting and Non-Retaliation Questions and Reporting You have an obligation to ADS and your colleagues to help maintain our high ethical business standards. If you have questions or are concerned about any aspect of our business and this Policy, you may contact:

• Your supervisor
• ADS’ Compliance Manager at compliance@ads-pipe.com
• ADS’ reporting Hotline at 888-234-4790 (you may remain anonymous).
• Via the internet at: www.ads-pipe.alertline.com (you may remain anonymous).

ADS is committed to Non-Retaliation
ADS will not impose sanctions or permit retribution against a person who promptly reports information of violations, or participates in an investigation of a suspected violation, and who has not him or herself engaged in such conduct. Any employee who reports a potential violation or raises a compliance concern in good faith is doing the right thing and may do so without fear of retaliation.

ADS will take prompt disciplinary action against any employee who retaliates against you, up to and including termination of employment.

Appendix A: Geographic Corruption Risks
The below listed countries rank 60 or below on Transparency International’s Corruption Perception Index. Conducting business within any of these countries indicates an elevated risk of corruption.

Slovenia 60 Spain 58 Czech Republic 56 Korea (South) 56 Malta 56 Cape Verde 55 Costa Rica 55 Latvia 55 Seychelles 55 Rwanda 54 Jordan 53 Mauritius 53 Namibia 53 Georgia 52 Saudi Arabia 52 Bahrain 51 Croatia 51 Hungary 51 Slovakia 51 Malaysia 50 Kuwait 49 Cuba 47 Ghana 47 Greece 46 Romania 46 Oman 45 Italy 44 Lesotho 44 Montenegro 44 Senegal 44 South Africa 44 Sao Tome & Principe 42 The FYR of Macedonia 42 Turkey 42 Bulgaria 41 Jamaica 41 Serbia 40 El Salvador 39 Mongolia 39 Panama 39 Trinidad and Tobago 39 Bosnia & Herzegovina 38 Brazil 38 Burkina Faso 38 India 38 Thailand 38 Tunisia 38 Zambia 38 Benin 37 China 37 Colombia 37 Liberia 37 Sri Lanka 37 Albania 36 Algeria 36 Egypt 36 Indonesia 36 Morocco 36 Peru 36 Suriname 36 Armenia 35 Mali 35 Mexico 35 Philippines 35 Bolivia 34 Djibouti 34 Gabon 34 Niger 34 Dominican Republic 33 Ethiopia 33 Kosovo 33 Moldova 33 Argentina 32 Belarus 32 Cote d'Ivoire 32 Ecuador 32 Togo 32 Honduras 31 Malawi 31 Mauritania 31 Mozambique 31 Vietnam 31 Pakistan 30 Tanzania 30 Azerbaijan 29 Guyana 29 Burkina Faso 38 India 38 Thailand 38 Tunisia 38 Burkina Faso 38 India 38 Thailand 38 Tunisia 38 Timor-Leste 28 Cameroon 27 Iran 27 Nepal 27 Nicaragua 27 Paraguay 27 Ukraine 27 Comoros 26 Nigeria 26 Tajikistan 26 Bangladesh 25 Guinea 25 Kenya 25 Laos 25 Papua New Guinea 25 Uganda 25 Central African Republic 24 Congo Republic 23 Chad 22 22 Democratic Republic of the Congo 22 Myanmar 22 Burundi 21 Cambodia 21 Zimbabwe 21 Uzbekistan 19 Eritrea 18 Syria 18 Turkmenistan 18 Yemen 18 Haiti 17 Guinea-Bissau 17 Venezuela 17 Venezuela 17 Iraq 16 Libya 16 Angola 15 South Sudan 15 Sudan 12 Afghanistan 11 Korea (North) 8 Somalia 8